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China's trade picks up, inflation eases

By JOE McDONALD AP Business Writer

Posted:
02/08/2013 12:15:33 AM MST

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In this photo taken Wednesday Jan. 16, 2013, women work at a textile factory in Jiujiang city in central China's Jiangxi province. China s trade growth surged in January but much of the increase was driven by the traditional Lunar New Year holiday. Export growth accelerated to 25 percent from the previous month's 14.1 percent as companies rushed to fill orders before shutting down for a holiday break of up to two weeks. CHINA OUT

BEIJING—China's trade picked up and inflation eased in January as a shaky economic recovery gained traction.

Much of the change was due to the Lunar New Year holiday, which distorts China's economic data each year. But analysts said data reported Friday looked promising.

Export growth accelerated to 25 percent from the previous month's 14.1 percent as companies rushed to fill orders before shutting down for a holiday break of up to two weeks. Import growth accelerated to 28 percent, more than quadruple the previous month's 6 percent.

China's trade growth has rebounded in recent months in a sign of economic recovery but longer-term trade measures are likely to show lower growth than January's double-digit increase. Analysts say the recovery will be gradual and too weak to support a global rebound without improvement in the United States and Europe.

"Seeing the underlying trend is a little difficult. Nevertheless, the data were above expectations and seem generally positive," said Moody's Analytics economist Alaistair Chan in a report.

Last year's Lunar New Year shutdown began in January, leaving fewer work days and boosting this year's figures by comparison. This year's holiday falls entirely in February, which will make this month's trade look unusually weak.

Once holiday distortions are factored out, trade growth for the first three months of the year should be in high single digits, said Goldman Sachs economists in a report.

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China's economic growth ticked up in the final quarter of last year from a three-year low. The World Bank and private sector forecasters expect economic growth of about 7.5 percent this year. That would be stronger than the West and Japan but China's weakest performance since the 1990s.

Inflation eased to 2 percent in January from the previous month's 2.5 percent despite a 37 percent jump in vegetable prices after the coldest winter in seven years damaged crops, the National Bureau of Statistics reported. Vegetable prices in some areas soared 74.6 percent.

The inflation decline was due in part to comparison with last January, when the Lunar New Year holiday began earlier and food prices spiked as families stocked up for banquets. This year, the food price spike will show up in February data.

Pressure for prices to rise has increased in recent months, possibly constraining Beijing's ability to support the recovery if needed with more spending or interest rate cuts. Inflation is politically dangerous in a society where the poorest families spend up to half their incomes on food.

Beijing is pinning its hopes for recovery on government-driven investment and domestic consumer spending. That is rising but not as fast as authorities want, forcing the government to fill the gap with spending on building subways and other public works.

Analysts warn China's recovery could be vulnerable if trade or government spending weaken. Societe Generale said last month there still is a chance of a "hard landing," with growth dropping below 6 percent, which would be dangerously low for China.

"A deceleration is likely by the end of the year if further stimulus measures are not forthcoming, which they probably won't because of latent inflation pressures," said Chan of Moody's. "Exports are expected to record moderate growth as the global economy recovers."

The politically volatile trade surplus with the United States, which has temporarily overtaken the struggling European Union as China's biggest export market, narrowed by 2.8 percent from a year earlier to a still-hefty $17.2 billion.

The trade surplus with the 27-nation EU contracted 10.9 percent to $12.3 billion. Exports to France fell 6.4 percent and shipments to Italy were off 2.8 percent.

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